As some prices ease over the last fortnight or so, it’s important to maintain perspective on current prices. Though our weak economy (with today’s jump in unemployment to 5.7% and persistent inflation) is benefitting from the 10+% reduction in spot prices, looking at today’s prices compared to last year keeps one’s eyebrows raised. It also shows society may have some serious shifts ahead without a further rise in price. Short-term demand reduction is often not as substantial as long-term reductions due to the long life of durable goods that drive energy demand (like Ford Expeditions and Toyota Tundras). It also takes firms a while to change their sticker prices that reflect the higher costs for their products and services (see airlines increasing fees for the fall and winter).
So, let’s review energy prices a bit compared to last year. The price of coal is about twice last year’s level in the US and even higher in Asia, with Japan signing a metallurgical coal contract for steelmaking that is 3.6 times the price a year ago. The price of natural gas is ~50% higher than it was a year ago in North America and many other markets. And oil is ~60% higher than last year, with gasoline up ~35% and diesel up ~60%. And prices were considered to be high back in 2007 too! For commodities so crucial to our everyday life, these changes are having serious and widespread effects. Automakers are reporting July sales in the US with continued 15-35% declines in SUV and truck sales, weeding out the people who bought such vehicles for show rather than for actual off-road use (these folks used to account for ~1/4 of the market, according to Ford). Meanwhile, a worrying trend behind major oil companies’ record profits for the 2nd quarter is the fact that most of them are producing less than they did a year ago. Economists, when are higher prices going to bring larger supplies like most of your models say? We’ll see…
Yesterday’s weekly natural gas report didn’t put much of a dent in the bullish sentiment of the last few days, as inventories gained less than projected to remain below the five-year average level. My question remains, “Will 2009 be the year renewables got competitive with fossil fuel prices without subsidies?” Whether or not, increasing our efficiency will help us weather the current storm of high energy prices and slow economic growth.
Tags: Coal, energy prices, Natural Gas, Oil